Just a scary thought!
My neighbor of many years had about 900 shares of Hdfc (pre split) so now he should be having 4500 shares. His portfolio was not too great, but this share somehow he listened to me and held on from 1980 onwards…so it had grown.
He had a very ambitious broker – and my genius neighbor opened a demat account there – and he had not asked me. He was a big broker – into a lots of related and unrelated business, so I am not naming them.
One day he came to me – a little agitated saying ‘My 100 shares of Hdfc are missing’ – even at that stage this meant about Rs. 70,000 and was not a small amount for a retired person. I said ‘Elucidate’.
He said..the manager working at the brokerage house said ‘I will buy and sell shares of Hdfc – and you will make some money.’ I said ‘You should have told me BEFORE, not after you sign some stupid Power of Attorney’ …he showed me some transactions – but all were squared off, and my neighbor should have had 900 shares – now he had 800.
I told my neighbor to go there on Monday morning….by Wednesday the shares were BACK in the statement.
I KNOW the broker had used these shares to do a pay in (either for himself or somebody else!)- when my neighbor threatened POLICE ACTION (this old man is good at screaming!) he was paid Rs. 20,000 to keep his MOUTH SHUT.
ha ha ha…
Why am I making you laugh?
Now there is a company called MF Global. Sorry there was a company called MF Global which used all its CUSTODIAL assets to make a margin payment, and then went bankrupt.
Long ago – sometime in the 1990s I lost a lot of money to a broker named Viswapriya Financial services (controlled by R Subramanian of Subhiksha fame) when they gave away CLIENT shares to the exchange and then defaulted.
Now if a company in many businesses decides to use the equity shares that it holds in the MUTUAL FUND business to pay for its MARGIN CALL what happens to your units?
Well like in case of MF Global you can:
a) twitch your thumb
b) suck your thumb
c) write letters to SEBI, PM’s office, IRDA, Ministry of Finance, PFRDA, ….etc.
d) thank your stars that they took only your shares and not your NPS account also
e) cry
Well, somebody had asked me ‘What if the mutual fund turns bankrupt’ well here up above is the answer.
In a classroom I am supposed to say: “Trustees are independent people who see every transaction – so that they are sure that the end unit holder is benefited in every transaction”
It is even easy to write that – everybody will be happy too. However what I have a sinister sense of joy writing about ‘worst case scenario’
here read what Debashis has to say also…
http://moneylife.in/article/how-safe-is-financial-gold/22319.html
LuckyOye
Readers may have seen my earlier post regarding gold…here also, I reiterate…Gold should not be bought for investment at all. It should be purchased as an insurance of the purchasing power of your savings.
Having said that, the next question to answer is what type of gold? To the non layman, the answer is obvious…99.9% pure physical bars and coins ONLY! Any other form and you are merely speculating. Gold ETFs, Gold Mutual Funds, Gold deposits, Gold futures…all come under the single umbrella of speculation of gold “prices”.
Buy upto 10% of your savings (not income) in pure physical gold, and stash it inside a Safe Deposit locker.
Only thing that I hope is that the government in our country is not that mad to institute a general attachment of all Bank Safe Deposit Lockers. This was done in the US in 1933 by F D Roosevelt. I think of it as a colossal shame and betrayal of hardworking American citizens at that time (and of course, every american SINCE THEN as well). Indian govt of course, never gave us that trust…having paper money since independence, so its unlikely to seal bank lockers to take away our gold.
Vikas
http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=10439:dont-store-bullion-with-bank-of-nova-scotia&catid=46:canadian-commentary&Itemid=134
Your views on this please. A quote from the above link:
“During the recent CFTC hearings, Christian blurted out that “the gold market was a hundred times the size” of the actual amount of “physical” bullion held by the (so-called) “bullion banks”. While I have long alleged that the banksters didn’t have sufficient bullion to cover their gigantic “short” positions and their equally gigantic “custodian agreements” with the fraudulent, “bullion-ETF’s” (most notably, GLD and SLV), the revelation that the banksters had leveraged their real bullion by (at least) 100:1 was a shock to everyone.”
This article is about Bank of Nova Scotia. As per information I checked in 2010. BNS used to store Bullion on behalf of Gold ETFs in India as well.
LuckyOye has already weighed in…
Subra, your views please?
pravin
the MF global should be warning sign of thngs to come.custodians,stock exchanges,regulators -none of them are 100% safe.
in the case of MF global,it is bizzare how COMEX allowed all that.imagine,NSDL telling you that the shares in your demat are now all gone.it is not that outlandish a scenario in a financial catastrophe. i’ll agree with luckyoye -physical gold alone is a good insurance against catastrophe.
Sreekant
I understand MF Global was legally allowed to utilize client assets as margin. It was more a legal loop hole or weakness.
BHARAT SHAH
and i think keeping gold in physical gold is inexpensive compared to etf and mf gold where the expense ratio in india is @1%. it will eat away gold itself @1% p.a. as gold being non income asset.